California is in desperate fiscal straits, facing a nearly unbridgeable deficit of $16 billion, the result of spending that continues to exceed estimates and tax revenue that fails to meet them. Those in better-governed states who are tempted to sniff at the Golden States comeuppance, however, should bear in mind that Californias position as a national trendsetter is still quite secure: What is happening in California is very likely to happen in other states  and possibly at the federal level  if action is not taken. There are lessons here for both the Left and the Right, and those who would not sink with California as it falls into a sea of red ink would do well to study them.

Californias present condition is the direct result of welfare-state governance in its full maturity. Intransigent public-employee unions use the collective-bargaining process to maintain their inflated compensation packages, while poorly administered programs for the elderly and indigent have produced a permanent dependent class with attendant expenses that are difficult or impossible to reduce: When Governor Jerry Brown attempted to impose co-pays on some recipients of medical benefits, the Obama administration blocked him. Governor Browns attempts to cut spending on health care by lowering some physicians reimbursements and subsidies for low-income Californians were blocked by the federal courts. Governor Brown has demonstrated very little that might be called fiscal responsibility, but such attempts as he has made at spending discipline have been blocked by federal authorities when they have not been blocked by Democrats in the state legislature. Those who suspect that Obamacare may turn out to be more expensive and less effective at controlling costs than its admirers have claimed should take a good long look at California to appreciate the difficulty of rationalizing out-of-control health-care spending in a single state. (And multiply by 50.)

Californias finances will not be meaningfully reformed until its public sector is reduced and disempowered, and its health-care spending is made sensible. There are significant legal roadblocks to achieving either end, which is why Californias debt-service costs are pulling away from those of the rest of the United States and heading in a distinctly Spanish direction.

Governor Brown has, in the conventional Democratic fashion, proposed raising taxes on certain high-income Californians to try to close that $16 billion deficit. California, like the nation at large, already relies disproportionately on the high-income for its tax revenue, a situation that produces inherent instability: When less than a tenth of taxpayers provide the great majority of tax income, receipts are likely to be volatile in the best of circumstances. Add to that the fact that the very wealthy  especially Silicon Valleys cosmopolitan entrepreneurial class  have options about when, how, and where to get paid. California expects to raise $1.5 billion in taxes from a single firm, Facebook, as employees and investors realize capital gains from the companys initial public offering of stock. But such expectations are far from assured: The Brazilian-born Eduardo Saverin, Facebooks cofounder, has renounced his U.S. citizenship and taken up residence in Singapore, probably not for the city-states rich cultural milieu but because it does not tax capital gains. Others will not go so far as to cross the Pacific; for many, getting out of California will be sufficient. As California has just demonstrated, raising tax rates is not the same thing as raising tax revenue. Capital is fungible, and people are mobile.

In fact, Californias income-tax revenues are down by 21 percent, in no small part because of a decline in capital gains and other investment income. Raising tax rates and imposing new taxes, as Governor Brown proposes, would provide incentives for those gains to happen elsewhere  and, ultimately, for investment and jobs to follow them. That trend already is under way: A survey of CEOs in April ranked California dead last among the states as a place to do business.

For conservatives, the lesson to be learned from California is the danger of counting too much on economic growth. Many of Californias current fiscal problems were made worse by wishful thinking about growth and its effect on both the revenue and the expense sides of the balance sheet. During the primary campaign, the Republican presidential candidates were almost to a man heavily invested in irrationally optimistic expectations about economic growth. Mitt Romneys tax plan, for example, in order to achieve revenue neutrality, must rely on growth assumptions that are more optimistic than current professional forecasts. Growth is of course a main goal, and its achievement is to be welcomed, but we must not use hypothetical future growth as an excuse to put off difficult taxing and spending decisions in the present.

California is one of our most beautiful states, and still one of our most enterprising and innovative. Its universities are a national treasure. That it has been reduced to this is a fearsome reminder that fiscal policy is not in the end about entries in the ledger but about the real quality of life for citizens. California has squandered its wealth, and the public-sector unions have looted the taxpayers. As goes California, so goes the nation  unless we act.

While California is a beautiful State and there are many good people living there, I can't help but think, “good riddance”. I want it to tank so spectacularly that it becomes the poster child for failed liberalism and then I want it to be rescued by conservatives who have no tolerance for the liberal mindset.. This is my dream.

4
posted on 05/15/2012 6:43:32 AM PDT
by liberalh8ter
(If Barack has a memory like a steel trap, why can't he remember what the Constitution says?)

This is another good reason to get Obama out of office. Obama will start getting his czars to pump money into failing states (CA, NY, MI) to keep them afloat as the chickens go home to roost. We can’t afford it.

when CA can no longer make payroll for the government workers, we’ll have to cut bait as a nation.

How can all Americans be expected to bail out states whose governments have no interest in trying to get their financial houses in order. It’s throwing good money after bad, and only encourages the freeloading states to spend more.

8
posted on 05/15/2012 6:47:52 AM PDT
by OrioleFan
(Republicans believe every day is July 4th, Democrats believe every day is April 15th.)

"for many, getting out of California will be sufficient. As California has just demonstrated, raising tax rates is not the same thing as raising tax revenue. Capital is fungible, and people are mobile."

Yes.

Karl Marx foresaw this loophole. That's why it is crucial to the establishment of his "workers' paradise" that a world-wide totalitarian government (i.e. police state) be established--and by violent means.

I heard on NPR this morning just how much worse they are than they thought they would be just a few months ago, by many BILLIONS of dollars. It very much reminds me of this analogy, which I think we are all living right now.

Imagine a magic pipette. It is magic because every drop of water that comes out of it will double in size every minute. So the first minute there is one drop, the second minute there are two drops, the third minute four drops, the fourth minute eight drops and so on This is an example of exponential growth. Now, imagine a normal sized football stadium. In this stadium you are sitting on the seat at the very top of the stadium, with the best overview of the whole stadium. To make things more interesting, imagine the stadium is completely water-tight and that you cannot move from your seat.

The first drop from the magic pipette is dropped right in the middle of the field, at 12pm. Heres the question: Remembering that this drop grows exponentially by doubling in size every minute, how much time do you have to free yourself from the seat and leave the stadium before the water reaches your seat at the very top? Think about it for a moment. Is it hours, days, weeks, months?

The answer: You have exactly until 12:49pm. It takes this tiny magic drop less than 50 minutes to fill a whole football stadium with water. This is impressive! But it gets better: At what time do you think the football stadium is still 93% empty? Take a guess.

The answer: At 12:45pm. So, you sit and watch the drop growing, and after 45 minutes all you see is the playing field covered with water. And then, within four more minutes, the water fills the whole stadium. This means that you think you are safe because it seems that you have plenty of time left, whereas due to the exponential growth you really have to take immediate action if you want to have any chance of getting out of this situation.

My personal opinion: 2008 was 12:45 and most people responded as in the analogy above. We are now at 12:47 and I think we will be to 12:50 by next year AT THE LATEST.

"Mitt Romneys tax plan, for example, in order to achieve revenue neutrality, must rely on growth assumptions that are more optimistic than current professional forecasts." Screw the so-called "professional forecasts". They are once again looking at things through a zero-sum prism. I lived through the Carter years and everyone believed the USA was finished, the USSR was ascendant, capitalism was dead, and we would have to get used to gas shortages, 18% mortgage rates, and 9% unemployment. Within 2 years of Reagan being elected, the economy was on full throttle and the supposedly intransigent problems disappeared. I was working in a computer store selling Apples and then IBM PC's and my commissions and salary went from 18K to 60K in 1984. I think Romney's election will do the same thing (if it happens). He "gets" the economy and should release the animal spirits and trillions of dollars currently sitting on the sidelines. If he gets elected in Nov., I am all in on the stock market - including my physical gold. The Dow went from <1000 to >10,000 during the Reagan years. This will be a repeat.

14
posted on 05/15/2012 7:01:19 AM PDT
by oncebitten
(Obama: A Big Ole Hunk of Nothing on Two Thick Slices of Nada.)

Michigan is a failing state no longer. 2012 provided a budget surplus which has been attacked by leftists at media outlets such as the NY Times and the Nation.

You are right and I did know that. But it is new and I forgot. I am glad Michigan is turning around. But I fear the lessons were not yet fully learned by the voters. We'll see how Michigan does in November. It will be telling of what the future holds for republican politicians there.

I think Americans who dont live in California rewrite history to deflect responsibility for the unopposed invasion and annexation of the greatest state in the union by a foreign power.

On illegal immigration, I would invite you to compare and contrast Arizona and California. Certainly the Fed can be blamed for not protecting CA from the "invasion" of illegal immigrants. On that we agree.

But much of CA in LA, San Diego, Fresno, Sacramento, San Fran, San Jose, Oakland, etc. has been enthusiastically complicit in accepting the falter of unenforced immigration laws. Bank of America started its special banking programs for illegal immigrants in CA. Elected legislators applauded the humanity, as I recall, and the state is still controlled solidly by democrats. None in CA that I am aware of have been voted out primarily because of their stance on illegal immigration.

-—Growth is of course a main goal, and its achievement is to be welcomed, but we must not use hypothetical future growth as an excuse to put off difficult taxing and spending decisions in the present.——

Who’s NR talking to? Themselves? The Beltway RINOs?

There isn’t a real conservative who doesn’t want to see govt spending slashed by 50%.

Actually, we castigated the court that threw our your Proposition 186, same as we do when they try to undermine Voter ID and Immigration enforcement. But the courts are beyond our reach, just as they are beyond yours.

And that doesn’t change the fact that certain urban areas in the PDRK and around the country enthusiastically supported illegal aliens and became “sanctuary cities.” However, we failed to to pressure our leaders to cut off all State and Federal monies from these lawless cities.

34
posted on 05/15/2012 10:17:03 AM PDT
by Little Ray
(FOR the best Conservative in the Primary; AGAINST Obama in the General.)

Last month he Dems in the Maryland assembly failed to agree (with each other) on yet another wave of tax increases last month so the leaders met behind closed doors and crafted another tax-us deal under another special tax session..

They got back together in a special session for the formality of the vote : they are raising income taxes on anyone making over 100K, the new rich. Apparently the two or three millionaires tax increases resulted in little new revenue. Hard to believe since Dem gov O Malley is an Obama troll and Obama says tax increases on ‘the rich’ is all we need to pay for everything.

Idiot voters!

37
posted on 05/15/2012 1:02:27 PM PDT
by sickoflibs
(Romney is a liberal. Just watch him closely try to screw us.)

Hard to believe since Dem gov O Malley is an Obama troll and Obama says tax increases on the rich is all we need to pay for everything.

The Left is still stuck on the idea that since Bill Clinton raised taxes and still had a pretty good economy for a while (although there were some bubbles that eventually popped), but the spending in Clinton's days is small potatoes compared to now.

What if you owed $50K in credit card debt, and you started to pay it off by paying $500 a month, but your family kept spending 2 or 3 times that much? The wrong people are in charge, and that includes both parties.

It would take more than higher or lower taxes to make a significant difference in the long run, and printing money will not be sufficient at some point.

The ACLU filed against Prop 187, and U.S. District Judge Mariana Pfaelzer sat on her ruling supporting the ACLU until Republican Governor Pete Wilson was safely out of the way- this allowed Democratic Governor Gray Davis to cut a deal with Pfaelzer that kept her ruling from being reviewed by the Court of Appeals.

But Pfaelzer’s one-woman scuttling of Prop 187 didn’t have to be the end of Prop 187- it could still be appealed by whoever is Governor of California. This means useless, half-Democrat Schwarzenegger could have appealed it- but Arnold was a sock puppet of the GOP-e and they don’t want Prop 187 passed. Prop 187 was passed by grass roots voters, it was loudly opposed by a whole host of GOP elitists, including Jack Kemp, Bill Bennett, and Dubya.

But the California weather is so nice, we should all bask in the sun between beatings in our concentration camps on the beach. I mean, who would ever leave this beautiful weather. Isn’t it worth all the torture of living in the gulags as long as the sky is blue and humidity is low? /SSSSSSSSAAAAAAAAAAAAARRRRRRRRRRCCCCCCCCCCCCCAAAAAAAAAAASSSSSSSSSSSSSSSMMMMMMMMMMMMMM

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